KFM Weekly Investment Update: Friday, 25 July 2014

Local Market Summary

• The State’s decision to relocate the Port Moresby Wharf to Motukea has been questioned by landowner groups from the area. The idea of development was welcomed however disappointment was expressed for non-consultation with the landowners during the earlier stages of the agreement.

• Oil Search announced oil and gas production of 3.7 million barrels of oil equivalent (mmboe) in the second quarter, compared to the 1.7 mmboe in the previous corresponding period. This was attributable to the startup of the PNG LNG Project.

• Newcrest Mining is set to wear another round of massive asset impairments; with the gold miner warning it could be forced to write down the value of its assets by as much as US$2.5b (see chart in the PDF attachment below).

• Kina Asset Management Limited announced the price at which shares will be issued to participants in the Dividend Reinvestment Plan (DRP) will be K1.02 per share. Shares will be issued on the 8 August 2014.

• InterOil Corporation has announced that it will buy up to US$50m of its own Class A common shares within the next 12 months. The buy-back will take place in the open market based on stock price and other market forces.

• This weeks BPNG auction in Treasury Bills was under-subscribed by K105.3m. The 182 days weighted average yield rate was unchanged at 4.3% while the 364 days weighted average yield rate rose to 6.7%.

• Over the week, PGK/AUD settled at 0.4353, down by 0.5% while PGK/USD exchange rates closed unchanged at 0.4099.

• Both the KSi and the KSi Home Index were down 0.2% and 1.5% respectively, settling at 3,757.2 and 8,231.3 for the week.

International Market Summary

• The International Monetary Fund has lowered its 2014 global economic growth forecast to 3.4% for this year, down from its April estimate of 3.7%, warning of “negative surprises” from the United States and China and geopolitical risks in Ukraine and the Middle East.

• The eurozone composite PMI rose by a robust 1.2 points to 54 in July, more that offsetting the moderation in May and June. The domestically driven services sector contributed most of the upswing (up by 1.4 points to 54), but the manufacturing index lags behind (up by only 0.1 points to 51.9), with the lagged effects of recent external shocks still weighing on factory activity.

• Steady credit growth has lifted China’s debt to more than 250% of gross domestic product as of the end of the first half, the highest rate according to Standard Chartered. Analysts reject any likelihood of a debt crisis and predict moderate credit growth in the near term after a 19% gain in the second quarter.

• Official figures show that Australian inflation was only at 0.5% in the three months to June, giving the country’s central bank room to keep interest rates at a record-low to support the economy.

• Low volatility across asset classes and macro forecasts is now a central focus for global investors, who fear that this reflects the complacency that sometimes precedes an inflection point in the markets.